Living Beyond Your “Mean”

By: Lee Roesner

Slowly and unknowingly creeping into debt.

We've all heard the phrase "Living beyond your means". It describes someone who is living beyond their financial resources. Interestingly, there are other definitions of the word "mean". One in particular can also be used here; the mathematical definition. This definition defines "The average value of a set of numbers". It's a statistical term. The "mean" or the "average".

So let's rephrase the above question: "Are you living beyond your mean?" More precisely; week-to-week, month-to-month and year-to-year, are you living beyond your "average" income? Do you even know what your average income is? You should. Because knowing your "mean", and having a way to measure your spending against it, is an uncomplicated and extremely precise gauge of whether you're slowly creeping into debt or not.

Averages take what is variable, random and uneven, combines them, and then determines a "middle". Averages take 34+56+8+21+4+75+5 (which totals 203) and divides it by the number of data points (which is seven in this case). The average here equals 29. 29 is your mean.

So how do you incorporate the use of averages in personal money management?

Ultimately, you continually monitor two very important figures: your average monthly income, and your average monthly spending. To be clear, when managing your money by averages, your spending is not measured against the amount of money you have in hand, or in the bank this week or that month, or at any one point in time. Your spending, as well as your income, is periodically collected, averaged and then monitored against each other.

So exactly how is this a better way to manage money?

Life goes up and down and all around. It's highly variable and random. This natural phenomenon easily distracts us from identifying patterns in our world. Using averages eliminates these distractions.

For instance, let's take a different set of numbers such as 10+3+14+15+61+40+60 and say they're a total of what you spent on breakfast on the way to work over the last seven months. A typical budget-minded person with a firm $30 per month allocated for this expense, struggles with the realities of randomness and variability relative to their static budget figure. They attempt financial control by managing each month individually, attempting to stay under the $30 budget figure, and then start over the following month.

To the contrary, if that same person had a larger perspective of their life and continued to monitor their spending activity as before, but periodically calculated a running average over time for this expense, they could easily see through the distractions of randomness and variability.

For instance, the first thing they would come to realize is that even if they spent the figures in the original set of numbers we mentioned above (34+56+8+21+4+75+5), the result would be the same as the new set of numbers we are using here (10+3+14+15+61+40+60). There is no difference. Both total 203 and have a mean of 29 per month. The point being, regardless of all the variability and effort to "stay on budget" each month in each scenario, it didn't really matter. The same amount of money was spent.

The second thing is, normally, a $30 budget figure would be considered a number you can't exceed each month. In the land of averages, this $30 is a mean figure. It's not a single month maximum. It's a single month average. While the traditional budgeteer is panicking over that last $60 monthly bill that was budgeted for $30 a month, the "average" man is continuously tracking and calculating his mean each month for this expense. He's continually weighing how much he's over budget against how much he's under budget. Seeing right through the monthly variability, he's recognized a trend; his average monthly expense has been creeping up over the last several months. But he also sees, at this particular point in time, that he's actually still under budget by $1 per month over the last seven months ($29/month actual versus $30/month budgeted). That's precision budgeting.

Money comes into our life at different times and in different amounts, and it leaves our life at different times and in different amounts. There are no two days alike. As if daily money trafficking wasn't confusing enough, taking a larger perspective, life also goes up and down. Because of all this variability your "current financial state" will differ greatly based on where you are in your life cycle. Making what seems to be a typical, responsible financial decision based on a financial snapshot of even two or three months is not enough information to make an informed decision. The result of which may not even be "felt" until a few months down the road when your life cycle is at a different point. This is how many responsible people slowly creep into debt. Distracted by variability and randomness, they unknowingly repeat these decisions at high points in their life cycles.

When making decisions based on your mean, you're taking into consideration many months of information and continually determining a surprisingly stable, average monthly figure. Each month that is added to this equation has a "proportional" effect on the end result. It's a distilled result of the highs and lows in your financial life. This mean figure easily removes the distractions of variability and is very telling of where you've been, where you are, and more importantly, where you're going. You can reliably plan your future and easily stay out of debt because your planning and spending decisions are guided by your mean income and mean spending to date, regardless of what you have (or don't have) in hand at any one point in time.

The more variability you have in your life, the more you need the law of averages. You should apply this mathematical science to your life and monitor both your average monthly income and average monthly expenses. You will find that two bad months divided by a great month is actually three good months and you're doing just fine. And you can just about guarantee that you'll continue to do just fine, regardless of your current financial long as you don't live beyond your mean.

Lee Roesner is an author and business owner in Northbrook, IL. He is creator of The B Word?: The Most Efficient Cashflow System in the Universe. A unique approach to family and personal budgeting. You can read more about The B Word? at

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